VIDEO: Sectors to Avoid During Q4 Earnings

Quarterly reports are hindsight, but they're still important catalysts for big moves

I talked with David Asman and Liz Claman over at Fox Business Network on Jan. 15. Three sectors he’s worried about for this Q4 earnings season are healthcare, IT and materials.

This is riffing on my recent post about sectors to avoid this earnings season, based on FactSet information on earnings estimates. To be clear, there still is growth generally for EPS figures and specifically for many segments of the market that are on the mend (housing immediately springs to mind).

However, the bar has been lowered significantly for several sectors — including tech plays Intel (NASDAQ:INTC) and Advanced Micro Devices (NYSE:AMD), pharma stocks like Pfizer (NYSE:PFE) and Teva (NYSE:TEVA), and materials stocks like Alcoa (NYSE:AA) that beat … but did so by stepping over an incredibly low bar.

One thing I’d like to make clear that the video perhaps did not is that these are reductions in forecasts — not a sign these companies won’t make money. If estimates go from $1.50 to $1.25, however, it’s safe to say things look troubling for the stock in question.

Furthermore, the nature of earnings is inherently backward-looking. Remember, Q4 earnings reflect conditions in October, November and December. So if a certain company has seen a big lift since Thanksgiving … well, it might not be wholly reflected in the reports. But that doesn’t mean you should discount all earnings data as antiquated because it is often directionally accurate.

At a Glance

The nature of earnings is inherently backward-looking. Remember, Q4 numbers reflect conditions in October, November and December. So if a certain company has seen a big lift since Thanksgiving ... well, it might not be wholly reflected in the reports. But that doesn't mean you should discount all earnings data as antiquated because it often is directionally accurate.